Academics — and their mad theories — are to blame for the financial crisis. They too deserve to be hauled into the dock”
So begins Anatole Kaletsky’s essay in The Times for February 5 2009. He is spot on. Economic theory played a direct role in this crisis, by legitimising the deregulation of finance and encouraging the profligate lending of financial institutions. There is much more that is wrong with the theory that dominates academic economics–known as “neoclassical economics”–enough to fill several books. My Debunking Economics : the naked emperor of the social sciences was one such book; in it I tried to explain all the technical flaws in economic theory to a non-mathematical audience.
The Today Tonight segment has been delayed till this evening (Wednesday February 4th)–which is a pity in a way because I will also be speaking at a public forum tonight at Circular Quay organised by the Property Knowledge Forum: An excerpt from the promotional flyer:
ARE WE HEADING FOR A DEPRESSION?
When will the bottom hit? Are we in store for 40% drops in property or has the recovery already begun?
Channel Seven’s Today Tonight is doing a piece on whether we might face a Depression, and if so what it might be like. It should go to air tomorrow–Tuesday February 3rd.
They have interviewed me for analysis, and Eric Aarons–who lived through the Great Depression and at 90 is still a dynamic sculptor and author.
They also want to speak to anyone who has lost their job recently–specifically if possible as a result of the global financial crisis.
So if anyone out there is willing to speak on camera about it, please contact the journalist James Thomas:
I’ve just been interviewed for an SBS News piece on China (for non-Australian readers, SBS is Australia’s multicultural television station, and its news has a strong international focus).
Ordinarily I don’t comment on China, because I don’t know enough about their economy right now–except to deride the belief that was popular in Australia last year that our exports to China would insulate us from the global downturn. “Decoupling” they called it–China was supposed to have its own internal growth dynamic that would mean it would continue growing and buying our raw materials even as the OECD tanked. This theory–ironically spouted by the same people who once touted that the world is now globalised and everything affects (and benefits) everything else–is now rather less popular as China’s growth has slowed.
What’s Really Going On? or…
Why Did I See it Coming and “They” Didn’t?
Part 2: The Models
“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” (Keynes, A Tract on Monetary Reform, 1924)
In last month’s Debtwatch, I explained why the data side of why the “Financial Instability Hypothesis” enabled me to predict this crisis, long before conventional “neoclassical” economists had any idea it was approaching.
The Parliamentary Library arranged a debate between myself and Rory Robertson of the Macquarie Group on the financial crisis today. We had a good audience of about 70 Parliament House denizens. You can download the Powerpoint Slides slides for my presentation, and the Vissim model of Minsky’s Financial Instability Hypothesis which was part of the presentation ( Right click and choose “Save As” since this is a text file; then install the viewer, which can load the file and let you run it (I’ve also loaded the EXE file of the viewer onto my site as another way of getting the program). You can make changes too, but they can’t be saved).
Yesterday the RBA (Australia’s Central Bank) cut its reserve rate by three quarters of a percent, to 5.25 percent. This is the third cut in 3 months, bringing the cumulative reduction since September to 2 percent
This is a far cry from the RBA’s expectations in 2007, that in 2008 it would be raising rates to constrain a booming economy and bring inflation back down to its target range.
Inflation is still above its target, but clearly that’s a bulls eye the RBA is no longer aiming for. What on earth went wrong with the RBA’s predictions for 2008?
2nd Anniversary Issue…
Why Did I See it Coming and “They” Didn’t?
The financial crisis is widely accepted as having started in August 9 2007, with the BNP’s announcement that it was suspending redemptions from three of its funds that were heavily exposed to the US securitisation market (click here for the BNP August 9 2007 press release).
Just three months beforehand, the OECD released its 2007 World Economic Outlook, in which it commented that:
Just two years ago, Central Banks appeared triumphant. Inflation, the scourge of the 1970s and 80s, appeared dead, the financial crisis of the Tech Wreck had been contained, economies worldwide were booming, and stock markets and house prices were spiralling ever upwards.
Then along came the Subprime Crisis, and we received a rude reminder of why Central Banks were created in the first place: to ensure that the world would never again experience a Great Depression.